STATE OF NEW YORK
INSURANCE DEPARTMENT25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following informal opinion on November 13,
2002, representing the position of the New York State Insurance Department

Fees to an Association for a Membership List

This is in response to your recent request for an opinion.

Question Presented

May an authorized insurer purchase membership lists from several
nonprofit membership organizations and pay for these lists if:

1. The insurer pays each membership organization a flat fee per member
based on the insurers profitability (its loss ratio) in the state in which the
membership organization is located (the flat fee per member would be adjusted on an annual
or a monthly basis)?

2. The fee is based on the insurers premium in that state?

3. The annual fee represents a flat fee for each member of the
organization that is an insured?

Conclusion

Any of the above methods of payment by the authorized insurer would be
permissible under N.Y. Ins. Law § 2324 (McKinney 2000 & Supp. 2002) or N.Y. Ins. Law
§ 4224 (McKinney 2000).

Facts

A Casualty Insurance Company and a Life Insurance Company (the
"insurers") are parties to Membership List Purchase Agreements (the
"agreements") with each of ten state Farm Bureaus. The Farm Bureaus are
nonprofit membership organizations that traditionally seek to advance the interests of the
agricultural community.

Pursuant to these agreements, the Farm Bureaus provide the insurers
with the right to utilize the Farm Bureaus membership lists in connection with the
marketing of both insurance products and financial services, and to use Farm Bureau names
and service marks in connection with the marketing of insurance products. The insurers now
pay the Farm Bureaus an annual fee based upon a flat fee per Farm Bureau member. The
insurers would like to change the form of payment as described above.

Analysis

In 2001, the Department issued Circular Letter 2001-5 dated February 1,
2001 which stated the Departments position that the sale of membership lists does
not constitute a solicitation or a referral and, accordingly, compensation for such list
could be contingent upon the sale of insurance. Circular Letter 2001-5 provides:

(T)he New York Insurance Law does not prohibit licensees from
purchasing lists of customer names and related information from non-licensees for the
purposes of soliciting insureds. The compensation payable to non-licensees for such lists
may be contingent upon the successful placement by the licensee of the insurance and may
be a percentage of the insurance commission the licensee earned from placing the business.

However, in the case of membership organizations, such as the Farm
Bureaus, because it is possible that the compensation will inure to the benefit of the
insureds, the question of rebating still remains. Previous Office of General Counsel
opinions have stated that payment to a membership organization for its membership list
based upon a percentage of the commission earned from the sale of insurance inures to the
benefit of the insureds and, thus, violates either N.Y. Ins. Law § 2324 (McKinney 2000
& Supp. 2002) or N.Y. Ins. Law § 4224 (McKinney 2000). However, these opinions also
stated that Farm Bureaus could be paid a fee for the use of their membership lists,
provided that the agreements only address the sale of the membership list and the form of
payment for such list, which must either be a flat annual fee or a fee based upon usage by
the licensee. Although the payment could not be contingent upon the purchase of insurance,
it could be determined by the number of members on the list, irrespective of the purchase
of insurance. An addendum to the list could be purchased in the same manner.

The inquirer asked whether there has been a change in the
Departments interpretation of the rebating statutes and, if so, whether any of the
alternatives posed above would be permissible. In General Counsel Opinion 2-26-2001, the
Department re-examined its interpretation of N.Y. Ins. Law § 2324 (McKinney 2000 &
Supp. 2002) and N.Y. Ins. Law § 4224 (McKinney 2000) with respect to their application to
a credit union

1.
The opinion stated that in a true rebate scenario, an identifiable quid pro quo exists,
and it is that evil which the statute was intended to prevent. Accordingly, the opinion
provided that the relevant standards to evaluate whether there is any rebating are:

1. whether there is any readily identifiable or quantifiable benefit
possibly gained by the members;

2. whether any such benefits inure in a manner that is related to the
purchase of insurance by any given member, i. e., whether there is proportionality or
relationship between the amount of insurance purchased by an individual member and the
degree of benefit enjoyed by that member; and

3. whether any benefit derived functions as an inducement to purchase
or retain the insurance.

The Department concluded that an indeterminate and nonquantifiable
benefit that may inure to the entire membership of a credit union would not constitute an
impermissible rebate or incentive under N.Y. Ins. Law § 2324

2. Accordingly, provided that the answer to
each of the above standards is no, a membership organization may be compensated in a
manner that is contingent upon the sale of insurance.

During a meeting of the Department with the Inquirer, the Inquirer
stated that you believe that the farm bureaus use the payments they receive for providing
the membership lists for general purposes such as lobbying expenses and that the money is
not being returned specifically to the individual members of the farm bureaus who purchase
the insurance. This being the case, the Department would conclude that the rebating
statutes would not apply in this case. First, any benefit possibly gained by the members
of the farm bureau cannot be readily identified or quantified. Second, any such benefits
inure in a manner that is wholly unrelated to the purchase of insurance by any given
member, i.e., there is no proportionality or relationship between the amount of insurance
purchased by an individual member and the degree of benefit (such as it may be) enjoyed by
the member. Finally, any benefit derived does not, as a practical matter, function as an
inducement to purchase or retain insurance  there is no quid pro quo. Accordingly,
any of the payment methods proposed above would be permissible.

I trust this is responsive to your inquiry.

For further information you may contact Supervising Attorney Joan
Siegel at the New York City Office

1 The principles enunciated in that opinion
would apply to all membership organizations.

2 The same conclusion would be reached under N.Y. Ins. Law § 4224 (McKinney
2000).